Question

Cost Report, Value Added and Non-Value Added Costs Sanford, Inc., has developed value-added standards for four activities: purchasing parts, receiving parts, moving parts, and setting up equipment. The activities, the activity drivers, the standard and actual quantities, and the price standards for 20x1 are as follows: Activities Activity Driver Purchasing parts Receiving parts Purchase orders Receiving orders Number of moves Setup hours SQ AQ SP 3,100 4,570 $255 6,200 8,500 245 0 2,700 380 0 9,500395 Moving parts Setting up equipment The actual prices paid per unit of each activity driver were equal to the standard prices. Required:

Answer 1

1. Sanford,Inc.

Value and Non - value- added cost report

For the year ended December 31, 20x1

Activities	Value-added	Non-value-added	Actual
Purchasing parts	3100×$255= $790,500	(4570-3100)×$255= $374,850	$1,165,350
Receiving parts	6200×245= $1,519,000	(8500-6200)×245= $ 563,500	$2,082,500
Moving parts	0	2700×380= $1,026,000	$1,026,000
Setting up equipment	0	9500×395= $ 3,752,500	$3,725,500
Total	$2,309,500	$5,716,850	$8,026,350

2. Non-value-added activities are those activities which does not provide any value to the product in the opinion of customer. If the business decides to layoff the Non-value-added activities it costs can be reduced.

In the given question the Non-value-added activities are

Moving parts and setting up equipment

However in the activities of purchasing parts and receiving parts there is also a component of Non-value-added activity.

The Non-value-added activity in purchasing parts is the excess of actual quantity over standard quantity multiplied by standard price.

Similarly for receiving parts activity also.

Non-value-added activities =(AQ-SQ)× SP

Purchasing parts. = (4570 - 3100)× 255= $374,850

Receiving parts. = (8500 - 6200) × 245 = $563,500.